Quick Facts

Guatemala’s economic freedom score is 60.4, making its economy the 87th freest in the 2015 Index. Its score is down by 0.8 point, reflecting declines in property rights, business freedom, and trade freedom that are partially offset by improvements in labor freedom, the management of government spending, and freedom from corruption. Guatemala is ranked 17th out of 29 countries in the South and Central America/Caribbean region, and its overall score is equal to the world average.

Over the past five years, Guatemala’s economic freedom has declined by 1.5 points. Longer-term declines have been concentrated largely in four of the 10 economic freedoms: property rights, freedom from corruption, government spending, and labor freedom. Property rights scores have dropped sharply.

The rule of law is weakly established, and crime, violence, and corruption are endemic. Poverty is high, and inefficient business regulations continue to inhibit entrepreneurship and employment. Despite a relatively high degree of trade freedom and low tariff rates, the dynamic economic gains from trade are undercut by the absence of progress in reforming other policies that are critical to sustaining open markets in the financial and investment areas.

Background

Center-right President Otto Pérez Molina succeeded social democrat Alvaro Colom in 2012. Guatemala withdrew from the Venezuela-led Petrocaribe oil alliance in 2013 after failing to negotiate favorable rates. As the administrative hub for the Central American Integration System, Guatemala is tasked with improving regional economic cooperation. Agriculture accounts for 11 percent of GDP. The economy was seriously damaged during the global recession but has rebounded since 2012. More than half of the population lives below the poverty line. Guatemala works closely with the U.S. on security issues, but Mexican drug cartels continue to expand their influence in the country. Former President Alfonso Portillo was extradited to the U.S. in 2013 and pleaded guilty to charges of money laundering in 2014.

In 2014, former President Alfonso Portillo pleaded guilty to taking $2.5 million in Taiwanese government bribes and attempting to launder the money through U.S. banks. A government study reports that corruption in customs offices costs $1.5 billion annually. Organized crime has infiltrated key state institutions. The judiciary is characterized by corruption, inefficiency, capacity shortages, and intimidation of judges, prosecutors, and witnesses.

Guatemala’s top individual and corporate income tax rates are 31 percent. Other taxes include a value-added tax and a tax on real estate. The overall tax burden is 10.9 percent of the domestic economy. Government expenditures are equivalent to 14.1 percent of domestic output, and public debt is equal to about 24 percent of gross domestic output.

Progress in improving the regulatory framework has been uneven. Bureaucratic hurdles, including lengthy processes for obtaining necessary permits, remain common. Completing licensing requirements takes over five months on average. Labor regulations are rigid, and a large portion of the workforce is employed in the informal sector. The state maintains few price controls but subsidizes numerous key economic activities and products.

Guatemala’s average tariff rate is 2.7 percent. Foreign investors can repatriate profits. There are some limits on foreign ownership of land. The financial system is dominated by bank-centered financial conglomerates. The banking sector remains stable and open to competition, but fewer than 20 banks are now in operation. Foreign insurance companies may open branches under a recently enacted insurance law.